Canon, Lone Wolf

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Canon, Lone Wolf

Most Japanese firms run with the pack. Not Canon. It's not a member of a cartel-like keiretsu. And it emphasizes individual effort over teamwork. Could that be why it runs the most productive R&D effort in the world?

Sometime this fall, at a sparkling new factory in the small Tokyo Bay town of Hiratsuka, a bunny-suited engineer will push a button, and a mobile robot will sally forth bearing thin sheets of glass for the first batch of the biggest liquid crystal display screens ever mass-produced. At 15 inches, these flat panels are half again as big as current state-of-the-art displays. They are based on an unconventional technology, known as ferroelectrics, which requires manufacturing skills of almost unbelievable precision. And they are made by a company with no previous experience in the display business.

That company is Canon, corporate dissident. Reinventing the wheel is supposed to be a dumb thing to do, but not the way Canon does it. Consider: Canon reinvented the 35mm camera, then the copier, then the printer (twice). And now, the liquid crystal display. Each time, the company has proceeded by developing original technology, surrounding it with patents, then using the period of patent protection to achieve dramatic economies of scale in manufacturing. Thus, even when the patents expire, would-be competitors still face a formidable barrier.

The best example of Canon's dissident strategy in action is the laser printer engine. If the printer you use is a Hewlett-Packard LaserJet or an Apple LaserWriter, to name just the two best-known brands, then a Canon laser engine is probably doing your printing. Indeed, without Canon it is doubtful laser printers would ever have become an affordable item.

Measured by number of US patents awarded, Canon can claim to be the world's most consistently creative company. "It's remarkable," comments Steve Myers, a Tokyo-based analyst at Jardine Fleming Securities. "For a fifth of the R&D budget, Canon has obtained about as many patents as IBM. Year after year, Canon has averaged more than one US patent per million dollars of R&D investment. No other company comes close to this standard of efficiency."

Most recently, Canon has demonstrated that it can also harness creativity outside Japan. Unexpected new prototypes and products - software as well as hardware - are popping out of the company's laboratories in the US, the UK, and Australia. Of course, when it comes to globalizing R&D, it helps to have a president like Hajime Mitarai. Mitarai has a doctorate in electrical engineering from Stanford University. Before joining Canon he worked for a US semiconductor firm - Signetics - in Silicon Valley.

As can be expected with such a big outfit - the company had sales of US$16.4 billion in fiscal 1993 - Canon has also had its share of embarrassments, especially in the computer business. Most notably, it supplied NeXT's Steve Jobs with at least $140 million, and possibly as much as $200 million, then failed to keep tabs on how Jobs spent the cash. In fact, Canon has a history of being much better at making products than at marketing them. Most recently, with low-cost inkjet printers, Canon won the race to the patent office, only to lose out to Hewlett-Packard on the way to the marketplace.

No Keiretsu, Thanks

Conventional wisdom says that all Japanese companies are alike. But a recent survey from a Harvard University team led by former IBM chief scientist Lewis Branscomb came to the unexpected conclusion that there are more differences in corporate culture between individual Japanese firms than between US ones. Regardless of how many Japanese firms run with the pack, there remain some lone wolves. Canon is an extreme example of this latter category. "We don't want to make what everyone else does," asserts Canon director Takashi Saito. The company is not a member of a keiretsu, the corporate groupings to which most big Japanese firms belong. On a personal level, it emphasizes individual effort over teamwork. Canon moves faster than local rivals because its managers make decisions on the spot, not by building consensus. And in a country where lifelong employment is the norm in big corporations, Canon welcomes mid-career hires - especially when they bring new technological skills.

Founded in 1933, the company more or less fell apart during World War II, to be reconstituted later by a most unusual man. Takeshi Mitarai, the current president's father, was an obstetrician who had bankrolled some renegade Japanese engineers in their quixotic attempt to build the world's best camera. He reluctantly stepped in as president of the fledgling firm because no one else would take on the job. Dr. Mitarai knew nothing about business and was not about to learn. Instead, he delegated responsibility to bright young proteges in their mid-30s, an outrageously precocious age in a country where seniority is paramount. Canon would eventually achieve its original goal in 1976 with the AE-1, the first microprocessor-controlled camera, which quickly became the bestselling single lens reflex in the world. But fierce competition kept profit margins wafer thin. Camera makers couldn't help noticing that it was a different story for film producers like Kodak. "With cameras, you're really doing work for the film companies," the younger Mitarai explains. "We call cameras 'film burners,' because no matter how you do it, only the film makers make money."

Was there not some product for which the same company made both the image-capturing part and the medium upon which it was captured? Well, yes there was: the products were called copiers – but an American firm called Xerox Corporation had a monopoly on them. Curious to know more, Canon acquired a 1962 report by a consultant in the US; it concluded that the patent wall surrounding Xerox technology would never be broken. To one of Canon's young turks, a 35-year-old R&D manager named Keizo Yamaji, the statement read like a challenge. "I had objections to that," Yamaji told the authors of Xerox: American Samurai in 1985. "I said, 'Let's try to break it.'" To take on one of America's most successful companies was an extraordinarily bold decision for a small Japanese firm. Breaking the Xerox monopoly on copiers took Canon six years, but the company did it, introducing in 1968 the first alternative to xerography.

Make a Canon and File the Original

Breaking the Xerox monopoly is the defining event in Canon's corporate history. As a late entrant in the copier market, Canon was forced to concentrate on niches where Xerox was weak. One of these was the low end, which Canon attacked with a series of progressively smaller machines, culminating, in 1982, with the launch of the personal copier. Copiers were notorious for breaking down, a propensity Xerox exploited by charging for service calls. Yamaji realized that to be successful, a personal copier would not only have to be cheap, it would also have to be virtually service free. Canon's revolutionary solution was to include all the key components - drum, charger, toner, and cleaner - in a replaceable cartridge. As it turned out, this was not just a good idea for copiers, it was also a great one for laser printers, where "service free" was even more of a priority. "It's a small thing," says Hajime Mitarai, "but if you have to pick a single factor that contributed most to the success of the laser printer, it's this cartridge idea, which was our invention." Printers and copiers now account for 80 percent of Canon's sales; cameras just 10 percent.

A second niche Canon pioneered is color copying, introducing its first color machine - a hybrid of copier and laser technologies - in 1987. For a long time, the only customers for color copiers were design studios and pro shops. Now, as the prices of the machines drop and as color becomes the norm for common applications like business presentations, color copiers are working their way into networks of office equipment. Once again, Canon leads the way at the low end with its line of entry-level "bubblejet" copiers. ("Inkjet" is the generic term for this category; "bubblejet" is a Canon trademark.)

The bubblejet principle was invented in 1977 by a Canon researcher in classic, accidental fashion. The tip of his hot soldering iron happened to touch the needle of a syringe charged with ink. The heat formed a bubble, and the bubble squirted a jet of ink out the end. Especially when compared with the laser printer, the beauty of the bubblejet is its simplicity. The print head can be mass-produced cheaply, its microscopic nozzles drilled clean as a whistle by an eximer laser. Canon has gone to town refining bubblejet technology, including the development of rapid-drying inks that do not bleed into each other and that give Canon machines the edge in quality over rival Hewlett-Packard. But in the marketplace, Canon has been comprehensively outmaneuvered by Hewlett-Packard, whose printers have grabbed 80 percent of the $1.6 billion color inkjet market. This market is exploding - International Data Corporation expects it to grow 64 percent this year - and Canon is determined to catch up. To head its bubblejet products operation, the company has picked an exceptionally confident executive, Takashi Saito.

"Color will become natural for business applications, for example, adding emphasis to a spreadsheet," Saito says. Beyond business, he adds, "our next target is in-home printing - printers that can pull images off the television will be a must-have." But penetrating the home market means making printers that sell for less than $500, the current price for low-end models. "It's a very challenging target," says Saito. But, he adds with a grin, Canon wants to do it precisely because of the challenge.

Of Bubblejets and Ferroelectrics

Of course, Hewlett-Packard is targeting the home market, too. But, as analyst Steve Myers points out, even if Canon fails to best Hewlett-Packard in inkjet printers, it won't be the end of the world for the Japanese. "The real kicker for Canon," he says, "is when it comes to buying color copiers." Myers believes that the increasing popularity of low-cost color printing will stimulate the growth of the color copier market. Since inkjet printing is intrinsically slow, people will look to color copiers when they need speed and volume.

At the same time, increasing use of color will also stimulate demand for flat panel screens. High-resolution color monitors hog desk space. But despite tremendous efforts, high-end flat panels are still prohibitively expensive for most applications.

To get high resolution and the fast switching speeds that video requires, most Japanese LCD makers have put a thin-film transistor behind each pixel. This makes such screens costly and difficult to manufacture. (The human eye is unforgiving: one dud transistor out of a million can mean having to junk the whole display. Industry insiders joke grimly about the "glass mountain" behind most LCD factories.)

Canon's approach does away with the need for transistors by employing new materials called ferroelectric liquid crystals. These switch quickly, and once switched, retain the new image without having to be refreshed. Canon began investigating ferroelectrics 12 years ago. Starting this fall, the Hiratsuka factory will produce 10,000 15-inch screens a month, then it will move to 21- and 24-inch models. "Our dream is to do high-definition, television-level resolution," says Hirokuni Kawashima, the soft-spoken manager who runs Canon's display business. "We think that with ferroelectric materials, we have plenty of room to do it."

The advantages of ferroelectrics have been known for almost 20 years, but thus far no one has dared to try mass-producing screens based on them. To strut their stuff, ferroelectrics need to be sandwiched between glass plates just one micron - one-thousandth of a millimeter - apart. That is approximately one-tenth of the gap used in conventional LCDs. Kawashima says that maintaining such a gap across a 15-inch screen is equivalent to covering the entire surface of the Tokyo Dome baseball ground with two layers of astroturf one millimeter apart. "It really is a very difficult technology," he says.

An Unusual R&D Mission

Want stereo sound? Ask any hi-fi buff, they'll tell you: you have to sit in the "hot spot." At the apex, that is, of an equilateral triangle formed by you and your two speakers. Move even slightly to either side and the stereo illusion collapses onto the nearest speaker, leaving you with boring old mono. Hiro Negishi, the inventor of wide-imaging stereo and the director of Canon's European Research Center in Guildford, England, has the solution to the hot-spot problem. In 1984, Hajime Mitarai, then Canon's director of R&D, dispatched Negishi to England with a mandate to exploit local strengths by making them the basis of new businesses. It didn't take Negishi long to discover that one of the UK's strong points was high-end audio equipment. In due course, he also discovered the hot-spot problem. And the corporate dissident in him rose to the challenge.

By background, Negishi is a chemical engineer. But he works for a company whose specialty is optics, and since light and sound both travel in waves, it was natural to try to apply the principles of optics to audio. Low-frequency sound radiates from a speaker evenly, but high-frequency sound is directional, behaving much like a searchlight. So the key to solving the hot-spot problem was to find a way of spreading the high frequencies across a wider area. Negishi came up with the idea of using a cone-shaped acoustic mirror to reflect the sound. To manufacture and market wide-imaging stereo speakers, Canon formed a new UK subsidiary, Canon Audio. US marketing of the black, mushroom-like speakers began in April.

Canon has since spun off a second subsidiary, Criterion Software, from its UK lab. Its RenderWare package enables developers to write interactive 3-D applications that do not need any special hardware - such as graphics accelerator boards - in order to run. As with Canon Audio, Criterion is staffed entirely by Brits.

A multinational company establishing overseas laboratories is nothing new. Firms like IBM, for example, have long run research centers all over the world. But foreign labs typically perform low-level functions, like localizing products to suit nearby markets. Using them to generate new products, as Canon does, is different. And the labs are proving prolific. "We keep coming up with things they didn't expect," chortles Kia Silverbrook, director of Canon's 70-person Australian lab in New South Wales. Take PageCraft, a software package the Aussies developed to make life easier for first-time desktop publishers.

In places like the UK and Australia, Canon has few problems recruiting talented researchers, because business opportunities there for such people are limited. But in the US, and especially in high-tech hog heaven, Silicon Valley, where Canon set up its American Research Center, the job market is much more competitive. So, to scout directors for the Silicon Valley center, Mitarai resorted to an unorthodox approach. "We tried to tap into the venture spirit, which we don't have in Japan," he says. "We recruited people who had done venture businesses before - and there are many of those, who have become millionaires before the age of 40. I tried to persuade them to work again, not for the money, but for the challenge."

However unorthodox his starting point, Mitarai's next step was typically Japanese - he asked John Linvill, his old professor at Stanford, to recommend someone suitable. Linvill came up with the names of two of his former PhD students, Harry Garland and Roger Melen. The chance to develop real products in a supportive environment was too good for any self-respecting engineer to resist. In looking for a suitable target for their energies, Garland and Melen hit upon the barrier that separates text in image form - e.g., fax - from text in ASCII form. While the latter can conveniently be searched by computer, the former can't.

They investigated optical character readers and discovered the low accuracy of such systems - typically, between 96 and 98 percent. Using a software model, the center has developed a prototype system capable of recognizing characters with an accuracy of 99.999 percent, or one error every 50 pages. The system is currently undergoing field tests to elicit feedback from customers.

Trying Once More in Computers

A huge success in computer peripherals, Canon's dissident strategy has repeatedly bombed in computers themselves. But, as Mitarai points out, at least the failures have been honorable ones. "We're always trying," he says. "Not for the mediocre, but for something different, something interesting." The company's first shot at the personal computer market was the Cat, launched in 1987. This was a machine designed by Jef Raskin, one of the parents of the Apple Macintosh. The Cat's most distinctive feature was two "Leap" keys in front of its space bar, to enable rapid document searches. But the machine was mismarketed - it was priced at $1,495 instead of the $795 originally planned - then hastily canceled. Raskin suggests that a possible explanation for the Cat's sudden demise was that his old nemesis Steve Jobs (another parent of the Macintosh) refused to let Canon in on NeXT unless they dropped Raskin. The company's next effort was the home-grown Navi (marketed in the US as the Navigator), launched in 1989. This was an ambitious attempt to combine an entire set of office machines - fax, phone, answering machine, and printer - into a single desktop device. But the Navi was ahead of its time, and once again Canon was let down by poor marketing.

Then came the involvement with NeXT. Canon and Steve Jobs had known each other since the early '80s, when Apple decided to source Canon print engines for the Apple LaserWriter. Canon would also provide the printer for the NeXT cube, as well as that machine's most controversial feature, its recordable magneto-optical disk drive.

The Japanese were evidently dazzled by Jobs (as, of course, were plenty of others, including Ross Perot). When NeXT needed money, Canon handed over $100 million without hesitation. This would be followed by further injections of cash - estimates of the total range as high as $200 million. Given the return on investment - NeXT eventually quit the workstation market to concentrate on developing software - you might expect Canon to be bitter about the experience. In fact, Mitarai is philosophical, but determined not to make the same mistake again. "As far as the NeXT venture was concerned," he says, "we just supplied money, we were not participants." Canon's latest foray into computers is a Silicon Valley-based start-up called PowerHouse, a regrouping of NeXT's hardware design team. This time, in addition to $11 million in seed capital, Canon is also sending its own engineers to learn the technology. "If you lose money in real estate, nothing remains," muses Mitarai. "But in computers, even if you fail, you acquire something: whatever experience our engineers go through remains with them, so they can go on to the next thing."

Case Study: Inventing the Laser PrinterLast September, Canon President Hajime Mitarai traveled to Hewlett-Packard's plant in Boise, Idaho, to celebrate 10 million Hewlett-Packard LaserJet printers shipped, every one of them packing a Canon engine. Mitarai planted some cherry trees, then gave a little speech. He reviewed the relationship between the two firms, now almost 20 years old, remarking that business-school professors can't understand why it works so well.

The academics should take a closer look. The story of the laser printer, the now-commonplace machine most offices use to produce high-quality documents, is a classic. It provides a perfect illustration of how technology moves from the laboratory to the marketplace. Not smoothly, as part of some grand corporate plan, but in fits and starts, dragged forward by determined individuals, often over the dead bodies of their management. In particular, the laser printer is the story of four individuals: Garry Starkweather of Xerox, who invented it; Takashi Kitamura of Canon, who made it affordable; and Dick Hackborn of Hewlett-Packard and Bob Belleville of Apple, who just had to have it.

The first thing to remember about the laser printer is that it is a modified copier. "Had Xerox not had a copier technology," Starkweather observes, "it would have been very difficult to get the laser printer out, because all the costs of a marking engine with the drums and the materials and everything were already in place." At Canon, he might have added, as well as at Xerox. What Starkweather changed was the way that images were written on the light-sensitive drum, substituting a laser for the copier's lamp. Then he developed an ingenious way of scanning the laser beam across the drum, reflecting it back and forth via a set of rapidly rotating mirrors on a shaft. Management at Xerox was unimpressed.

Instructed to stop work on it, Starkweather continued to improve the technology under the table. For a while it looked like he might have to leave Xerox to carry on with his work. Then he picked up a copy of the company newspaper and read an item about Xerox, based in Stamford, Connecticut, forming a new research center out in Palo Alto, California. It turned out that Starkweather's machine was the ideal solution for a problem that another PARC luminary, Alan Kay, was having: how to print out from a screen data that was driven by images rather than characters. In early 1971, Starkweather moved to the West Coast, put a prototype together, and by that fall, the world's first laser printer was cranking out a page a second at a 500-dpi resolution. "The machine worked beyond anyone's dreams," says Starkweather. But this was long before personal computers, and Xerox could not envisage anyone wanting printers in their offices.

Six thousand miles away, Takashi Kitamura, an applied physicist who had recently returned to Tokyo from two years of research on image processing at MIT, was not troubled by questions of markets. All he knew was that his company, Canon, was looking for new businesses to tap. With the computer market growing 25 percent to 30 percent annually, computer peripherals seemed like a good bet.

Kitamura and his engineers built a prototype laser printer engine, but Canon had neither the experience nor the cash to go any further. In 1975, the company rented a small booth at that year's National Computer Conference. There Canon's prototype was spotted by none other than William Hewlett himself, at that time still Hewlett-Packard's CEO. The Palo Alto-based company licensed the Japanese technology for its first foray into laser printers, a $100,000 kludge designed to connect to Hewlett-Packard's proprietary minicomputers. Hewlett-Packard didn't sell many of these early units, but they learned a lot about laser printers.

Meanwhile, Kitamura and company concentrated on making the engines small. Once again, they were able to crib from their colleagues in the copier division. In particular, they borrowed the cartridge originally developed for Canon's personal copier, introduced in 1982.

The cheap, replaceable drum that the cartridge contained was the solution to the reliability problem that bedeviled copiers and their offspring. The Japanese flew the cartridge-based engine over to Boise to show the folks at Hewlett-Packard. For a manager by the name of Dick Hackborn, it was love at first sight. "I remember Hackborn saw the engine and immediately said 'I want it,'" says Steve Simpson, general manager of Hewlett-Packard's Boise printer division, about his former boss. (Hackborn retired from Hewlett-Packard last year.) "He saw the opportunity that we might have, though nobody perceived how big that opportunity might grow to be." The announcement of HP's LaserJet in early 1983 set other minds thinking about laser printers. With the Mac more or less under control, Apple Computer's Steve Jobs and his director of engineering, Bob Belleville, were tossing around ideas about what to do next. The way Belleville recalls it, "Steve said, 'What shall we do?' And I said, 'I want to build a laser printer,' and he said, 'That sounds like fun - what would a laser printer look like?'" Because Belleville had been at PARC, he was able to answer that question.

So, next time the pair went to Japan, they met and negotiated a deal with Canon. Jobs discovered what John Warnock and Chuck Geschke were doing with automatic font generation at Adobe. Earl Smith, the designer of the original Mac logic, was prevailed upon to create a controller to run Adobe's PostScript software, and the Apple LaserWriter was born. But Apple's management was not impressed, especially by the printer's hefty $7,000 price tag. It was the middle of the Lisa disaster (Apple's overpriced and underpowered precursor to the Mac), Belleville explains, and "they didn't want any products that were up near $10,000. I said, No, you don't understand, this isn't a computer. You put this in the dealer, you put the test software on a Mac, you push the button, out comes this beautiful page. And out comes the checkbook, I can guarantee you that.'"

No one believed him. "The LaserWriter project was killed at Apple once a month for two years," laughs John Moon, the manager Belleville hired to run the peripherals operation at Apple. At one stage in late 1983, even Jobs got cold feet, leaving Belleville as the only champion. "It was Bob who really kept the toothpaste in the tube," says Moon.

Apple launched the LaserWriter in 1985 - and fired Jobs and Belleville. Now at Silicon Graphics Inc., Belleville believes that the laser printer was the key part of the Macintosh package. "Apple Computer would be out of business if it hadn't been for the laser printer," he asserts. "The LaserWriter is what made the Mac, and it's what kept Apple afloat between the time they threw us out and the time they got completely weird."

The relationship between Apple and Canon was never as close as the one between Canon and Hewlett-Packard. Over the years, Apple and Canon have often wrangled over costs and delivery dates, with Canon refusing to waver from its basic philosophy that quality comes first. "That was the highest-order bit to them," says Moon, who recently left Apple to form an independent company, D'Ombre Systems. "They believed that if they had products of superior quality, the products would sell. To achieve that quality, their tactics were to invest in the basic technology."

By handing off the design of the formatter (a printer's higher-level electronics) and the marketing to customers like Apple and Hewlett-Packard, Canon has been able to focus on what it does best - making improvements to the machine. "If you don't keep mixing in new technologies with the ones you already have, then you can't stay ahead of the competition," says Takashi Kitamura, who after 21 years is still in charge of laser printer development at Canon. In recent years, Japanese rivals like Fuji, Xerox, and Ricoh have posed a challenge with their low-end laser engines, but Canon still owns more than 70 percent of the market. Since the engine typically accounts for half or more of the cost of a printer, this is lucrative. The laser printer market was worth $4.8 billion in 1993, according to International Data Corporation, which projects growth of 10 percent in 1994. (HP, which uses only Canon engines, has 55 percent of this market.)

The latest example of Canon's unending drive to stay ahead is a new printer engine that is the first to comply with US Environmental Protection Agency guidelines for energy conservation. In order to fuse toner to paper, laser printers eat loads of electricity, heating the aluminum roller that does the fusing (in some offices, the lights dim when the printer's on). But it's the energy printers use to keep the fuser warm while they stand idle - which is most of the time - that accounts for the bulk of their consumption. And before the printer can be used again, the fuser must still be heated up to fusing temperature, a process that typically takes from 30 seconds to a minute. Canon used a radical redesign to solve the problem. The basic idea is to dispense with the aluminum roller in favor of a small ceramic heater.

"Essentially, what Canon has done," comments Steve Myers, a Tokyo-based analyst with Jardine Fleming Securities, "is both to eliminate the need to keep the fuser continuously warm and dramatically shorten the time required to heat it."

The future for Canon's laser printer engine business would appear rosy, were it not for one very sharp thorn - exchange rates. The dollar continues to plummet in value against the yen - at the time of this writing, the rate was at a record low of US$1 to Yen97. "We can't raise our prices too much," says Kitamura, "so from a profit point of view, the current situation is very tough."

That much, at any rate, the business school professors should be able to understand.